2024 (7) TMI 1269 - AT - Income Tax

Correct head of income - interest income representing premium on redemption of Non-Convertible Debentures NCDs - capital gain or income from other sources - HELD THAT - Learned counsel is fair enough in stating at the Bar that this tribunal s coordinate bench s order in assessee s appeal 2024 (4) TMI 1152 - ITAT MUMBAI for assessment year 2010-2011 dated 15.04.2024 as held NCDs under consideration are privately placed debentures and they are not listed in the stock exchange. Further, the assessee herein has not sold the NCDs in the open market. The assessee has only surrendered the NCDs to the SPVs, viz., M/s Bhishma Realty Ltd and M/s Capricorn Realty Ltd, for redemption. Thus, it is a case of realization of money advanced by a creditor, since debentures are debt instruments only. Thus, the question of generation of capital gains will not arise, when the debentures are redeemed by the issuing companies. Further, what is received by the assessee in the form of premium is nothing but interest income only. Accordingly, we are of the view that the Ld CIT(A) was legally correct in holding that the premium/surplus received by the assessee is interest income assessable under the head Income from Other Sources. - Decided in favour of revenue. Set-off of long term capital loss against long term capital gains - In view of foregoing adjudication, is restored back to the learned Assessing Officer for his afresh computation as per law in very terms once learned counsel is equally fair in not disputing the fact that the assessee had computed the impugned losses under the head capital gains long and short; and sought to set-off the same against the long term capital gains arising from redemption/transfer of non-convertible debentures (supra). Disallowance u/s 14A - computation of administrative expenditure disallowance relating to exempt income u/sec.14A read with Rule 8D(2)(iii) - HELD THAT - We first of all see no such distinction either in sec.14A nor in Rule 8D drawing a distinction between the categories of portfolios; whatsoever. Coming to the assessee s reliance of this tribunal s foregoing decision Vineet Investments 2017 (6) TMI 1124 - ITAT DELHI we find that the learned coordinate bench had dealt with assessment year 2008-2009 whereas Rule 8D was applicable w.e.f. 01.04.2008 onwards. The same stands distinguished in very terms. Computation of the impugned disallowance(s) - Revenue could hardly dispute that Vineet Investments 2017 (6) TMI 1124 - ITAT DELHI have settled the issue that such a disallowance has to be computed after considering the dividend yielding investments only. We find from a perusal of the assessee s paper book he had filed the corresponding list of dividend yielding investments in the lower appellate proceedings. The same appears to have not been considered of the lower appellate discussion. Faced with this situation, we direct the AO to compute the impugned administrative disallowance afresh in very terms. This assessee s fourth and fifth substantive grounds are partly accepted for statistical purposes in above terms. Ordered accordingly. Action invoking sec.17(2)(iii)(a) assessing perquisites - difference between actual cost of purchase of the concerned flat and stamp value adopted by the state authority(ies) - HELD THAT - We first of all note that there is no employer-employee relationship regarding the assessee s purchase of the flat herein once it is a tripartite agreement amongst owner/company, developer and himself director . There is no material in the case file which could indicate that the owner/company had in any way unilaterally borne the corresponding difference figure in it s books of accounts or otherwise; as the case may be. We wish to observe that the employer-employee relationship in service jurisprudence is always a bilateral one whereas the facts of the instant case involve a developer as well. This tribunal s learned coordinate bench s order in Keshavji Bhuralal Gala 2018 (1) TMI 971 - ITAT MUMBAI as further rejected the Revenue s very stand stating as in the absence of any enquiry conducted by the Assessing Officer to demonstrate that the value adopted for stamp duty purpose is the actual fair market value of the properties sold, it cannot be said that a benefit in the nature of perquisite as provided under section 17(2)(iii) of the Act has been given to the assessee by the company.

Issues Involved:
1. Opportunity of being heard in assessment proceedings.
2. Classification of income from redemption of Non-Convertible Debentures (NCDs).
3. Set-off of long-term and short-term capital losses.
4. Inclusion of personal investment facts in assessment.
5. Disallowance under Section 14A.
6. Taxation of perquisites related to property purchase.

Detailed Analysis:

1. Opportunity of Being Heard:
The first issue raised by the assessee was that the assessment was completed without giving a proper opportunity of being heard. The tribunal rejected this ground as it was general in nature and did not provide specific details.

2. Classification of Income from Redemption of NCDs:
The assessee contended that the premium received on the redemption of NCDs should be classified as long-term capital gains rather than interest income. The tribunal referred to its earlier decision in ITA.No. 3678/MUM./2015 for the assessment year 2010-2011, which had ruled in favor of the department. The tribunal held that the gain from the redemption of NCDs should be assessed as interest income under the head "Income from Other Sources" and not as long-term capital gains. It noted that the debentures were debt instruments and the premium received was essentially interest income.

3. Set-off of Long-Term and Short-Term Capital Losses:
The assessee sought to set off long-term capital losses (LTCL) and short-term capital losses (STCL) against the long-term capital gains from the redemption of NCDs. Given the tribunal's decision to classify the income from NCDs as interest income, the tribunal restored this issue to the Assessing Officer for fresh computation, acknowledging that the assessee had computed the losses under the head "capital gains."

4. Inclusion of Personal Investment Facts:
The assessee argued that personal investment facts had been submitted to the Assessing Officer and should have been considered. The tribunal did not provide a specific ruling on this issue, indicating that it was not a separate substantive ground.

5. Disallowance under Section 14A:
The assessee challenged the disallowance of Rs. 6,94,931/- under Section 14A related to administrative expenses for exempt income. The tribunal noted that the assessee had derived exempt income from dividends and share of profits in a firm. The tribunal found merit in the assessee's argument that the disallowance should be computed after considering only the dividend-yielding investments. It directed the Assessing Officer to recompute the disallowance accordingly.

6. Taxation of Perquisites Related to Property Purchase:
The assessee challenged the addition of Rs. 83,54,000/- as perquisites, representing the difference between the actual cost of purchase of a flat and its stamp duty value. The tribunal found that there was no employer-employee relationship regarding the purchase of the flat, as it was a tripartite agreement involving the owner/company, developer, and the assessee (director). The tribunal referred to a previous decision in Keshavji Bhuralal Gala vs. ACIT, which held that the difference between the stamp duty value and actual sale consideration could not be treated as perquisites without establishing that the stamp duty value was the fair market value. The tribunal deleted the addition, finding no material evidence to support the Revenue's stand.

Conclusion:
The assessee's appeal was partly allowed. The tribunal rejected the classification of income from NCDs as long-term capital gains, upheld the disallowance under Section 14A with directions for recomputation, and deleted the addition related to perquisites on property purchase. The issue of set-off of capital losses was remanded to the Assessing Officer for fresh computation.

← Previous Next →